Imagine a small-town credit union, nestled between your favorite bakery, the old post office, and that quaint bookstore inviting a sense of community and timeless charm. It’s a haven where everyone knows your name. 

But in this cozy setting, big changes are brewing. 

The dawn of Regulation 1033. 

It promises to bring both challenges and opportunities, especially for our small-town credit union and its peers spread out across the country.

For larger banks, adapting will be just another day at the office. But for that credit union– the story’s different. 

The disproportionate impact of compliance costs and technology upgrades is a Goliath they’ll have to face– and there doesn’t appear to be a way to circumvent these regulations,  assuming Reg. 1033 passes as it’s been introduced. 

The good news is, like any underdog story, there are strategies for these Davids of the banking world to not only meet these new compliance requirements– but also, to excel.

Let’s jump in.

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The Compliance Conundrum

Compliance has always been a ‘cost of doing business,’ whether you’re a credit union or you’re the venerable Bank of America. According to the Regulatory Burden Study, “the combined effect of increased costs and reduced revenues due to [compliance] amounted to at least $7.2 billion in financial impact for credit unions.” 

And that was just in 2014! Imagine today.

Regulation 1033 – under the Dodd-Frank Act– appears to demand significant technological departures from the status quo. These include– but are not limited to– building the critical systems for provisioning and sharing of financial data with consumers and third parties upon request. 

For institutions like Bank of America - this is a walk in the park. Again, just the cost of doing business. 

But for smaller institutions the financial and technical burdens are substantial. Compliance costs are simply higher relative to their size, and the required upgrades are complex.

In that same report, the authors found small credit unions, defined as those with less than $115 million in assets, reported a 43% increase in compliance costs since 2010, significantly higher than the total industry expense increase of 16%. 

Making the necessary changes won’t be easy, but there’s hope. Let’s take a look at how our beloved community banks and credit unions can gear up to make the most of what Regulation 1033 demands of them.

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Leaning into Collaborative Tech Partnerships

Small banks and credit unions can and should collaborate with fintech companies. The latter are at the forefront of developing the type of technologies financial institutions need to comply with Reg. 1033, and partnerships can provide access to advanced technology at a fraction of the cost of developing them internally. 

Here at Quiltt.io, we offer the tools developers need to quickly stand up open-banking stacks that comply with Reg.1033: a simple API, a single data model, multiple vendors under one roof, bleeding-edge data privacy, and security.

Why multi-vendor? Because there are >12k FIs in the United States, and no one data aggregator covers them all. Plus, with the ability to route across them dynamically in real-time, you can take the good and leave the bad: route to higher fidelity data providers; route to higher converting providers, etc. All of this with just a few lines of code. 

The alternative, from a credit union’s perspective, would be to build out this infrastructure internally, and we’ve already covered how resource-constrained these institutions are. 

It’s not going to happen, but by leveraging relationships with fintech platforms that have already done the heavy lifting– they don’t have to rely on internal resources to compete.

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Leveraging Community Networks

Community banks hold a unique advantage in adapting to Reg.1033: their deep community roots. 

These are characterized by close relationships with local customers, an unparalleled understanding of regional economic trends, and a reputation as a trusted advisor within the community. It’s by capitalizing on these strengths and engaging with their customers that community banks can effectively navigate the challenges and opportunities presented by Reg. 1033.

Engagement should focus on clear, transparent communication. 

Community banks can organize local seminars, workshops, and interactive sessions to educate customers about the changes. Utilizing local media, social media platforms, and direct communication channels like emails and newsletters are effective ways to reach out to the community.

Education is key to easing any concerns customers have regarding data sharing. 

Community banks should explain the benefits of Reg. 1033, such as improved access to personal financial data, better data portability, and more personalized banking services. Staff should be trained to answer questions and clarify misconceptions about data security and privacy.

By engaging customers directly in the transition process, banks can enhance trust and loyalty. This strategy demonstrates their dedication to securing customer data and elevating service standards, aligning with Regulation 1033's objectives. Additionally, by seeking customer feedback via surveys or community forums, banks underscore their appreciation for customer perspectives and their dedication to meeting customer needs.

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Focus on Niche Services

Specializing in niche services tailored to their customer base can help smaller banks differentiate themselves and add value that larger banks may not be able to provide.

By embedding and launching more modern banking features, such as Personal Finance Management (PFM) dashboards, round-up savings tools, or enriched data-driven marketing operations, small banks can drive more account openings. 

These features appeal to customers seeking a more personalized - yet modern -  banking experience. For instance, PFM dashboards help customers manage their finances more effectively, while round-up tools encourage savings in a user-friendly way. Utilizing enriched data allows for targeted and relevant marketing strategies, further attracting new customers.

Doing so can help smaller banks counteract deposit flight. Customers now expect these features as standard. By offering them, they retain their existing customer base and can even attract customers from larger banks, who might be seeking more personalized, high-touch experiences.

All of this becomes possible with a compressed time-to-market.Thanks to partnerships with fintechs, smaller banks can offer these niche services without the heavy lift of building everything in-house.

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Conclusion

The journey for smaller banks and credit unions in adapting to Reg.1033 is akin to navigating a labyrinth. It's challenging, yet there are pathways to not only emerge unscathed, but to also thrive. 

As you gear up for these changes, the question remains: How will you redefine your banks’ role in the new Reg. 1033 era?